Understanding your first payslip
It is very exciting to negotiate your first cost-to-company (CTC) salary package when you enter the world of work.
Often, you've started plotting how to spend the money long before it's even paid into your account, but if you don't understand what CTC is, you could be in for a nasty surprise.
The joy of being employed may be short-lived when an SMS arrives on payday and what has been paid into your account is very different to what you thought you would receive. Take a step back and understand the difference between CTC and net income, what benefits you do or don't have and the deductions that will come off your salary.
Jane Hugo, 2018 Financial Planner of the Year, says CTC is the total amount of money your employer spends on you in a year.
The amount it spends on you could include some or all of the following:
A 13th cheque;
Contributions to a retirement fund on your behalf;
Contributions to a medical scheme on your behalf;
Group life cover which you enjoy without having to undergo medical tests or filling in questionnaires;
Life cover beyond group life cover on an individual basis with medical tests and questionnaires;
Income protection premiums;
Lump-sum disability premiums;
A travel allowance;
A company vehicle;
Bulk-bought insurance for your vehicle;
Bulk-bought private insurance;
Accident insurance; and
Life assurance that pays out if your spouse dies.
Your total cost-to-company package will also include amounts that are deducted for tax (pay-as-you-earn or PAYE), what you are paid when you are on leave and may include amounts allocated to an annual bonus, André Lindeque, consultant at wealth and financial advisory firm GTC, says.
Christine Marincowitz, a spokesperson and head of investor relations at financial services company Ecsponent, says that while you must know what you are getting in your pocket at the end of the month before accepting a job, understanding your total CTC before you accept a new job is just as important.
"Don't just be swayed by the bottom line number, as you might be cheating yourself by choosing short-term gains over long-term benefits," Marincowitz says.
For example, if company A offers a net monthly salary, after tax, of R20,991 and company B R20,683, then company A will give you around R300 a month more in your pocket.
However, let's say company A offers no benefits and the offer translates into a CTC of around R300,000 a year.
Company B on the other hand, contributes 10% of the basic earnings to a retirement fund, which is tax deductible. "So, while you are receiving a few hundred rand less in your pocket, this offer's cost-to-company is over R313,000 a year, or more than R1,000 per month higher than the offer from company A."
This means you are contributing more than R2,300 a month to a retirement fund and paying almost R1,000 less in tax each month. After 20 or 30 years, the retirement fund contribution can grow to an attractive investment at retirement.
The experts all agree the best way to understand your CTC offer and the deductions before you accept an offer is to ask the company HR representative for a mock payslip that shows the benefits, contributions and net pay.
Lindeque says it is as important to understand what is not included in your salary package as it is to understand what is included.